Fresenius Medical Care Corporation (FMS)

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Fresenius Medical Care AG & Co. KGaA (FMS)

Q2 2009 Earnings Call

August 4, 2009 9:30 am ET


Oliver Maier - SVP of IR

Ben Lipps - Chairman

Lawrence Rosen - Finances


Tom Jones - JPMorgan

Kevin Ellich - RBC Capital Markets

Gary Lieberman - Wells Fargo

Lisa Bedell - Sanford Bernstein

Leslie Iltgen - Bankhaus Lampe

Rodolphe Besserve - Société Générale

Ed Ridley-Day - Barclays Capital

Michael Jüngling - Bank of America/Merrill Lynch

Holger Blum - Deutsche Bank

Martin Whitbread - Morgan Stanley

Andreas Dirnagl - Stephens

Martin Wales - UBS

Scott Bardo - Credit Suisse

Hans Boström - Goldman Sachs

Jack Scannell - Sanford Bernstein



Good day and welcome to the Fresenius Medical Care Earnings Release of the First Half Year 2009 Results Conference Call.

At this time, I would like to turn the conference over to your host today, Mr. Oliver Maier. Please go ahead, sir.

Oliver Maier

Thank you, Katie. Good afternoon and good morning, everybody on the call. Thank you for joining us for Fresenius Medical Care's meeting today, which will cover our second quarter and first half year results and achievements.

By now you should have received all the material, the copies and the press release and all the material also available on our web page.

Let me start, as usual, to comment on our Safe Harbor statement. This presentation today includes certain forward-looking statements. Actual results could differ materially from those included in the forward-looking statements due to various risk factors and uncertainties. These and other risks and uncertainties are described in detail in the company's reports filed with the SEC and the Deutsche Berger.

Concerning our Q2 2009 press release and investor news at the end of our presentation, which we use today, we included, in compliance with the Section 401 of Sarbanes-Oxley, a complete bridge for any non-US GAAP measure that we utilize and relate such to the nearest US GAAP measure available.

With us today is Ben Lipps, Chief Executive Officer for Fresenius Medical Care. Ben will give us an update on the business development. LARRY Rosen, our Chief Financial Officer for Fresenius Medical Care, who will brief us on the results in detail for the second quarter and half year for 2009.

This is it from my end. Ben, the floor is yours.

Ben Lipps

Thank you, Oliver. Ladies and gentlemen, let me extend a warm welcome to you, our Board members and all the employees and associates around the world who are joining us on the Internet. As Oliver said in terms of the agenda, I'll cover the business update, Larry will cover the financials, and then we'll open up for questions and answers.

Turning now to slide four, let me say that I'm very pleased with the solid performance we had in Q2 and the performance of our team around the world, despite the strong currency fluctuations that we've seen and also the cost pressures that we carried over from 2008.

Before I start through the numbers, I'd like to share with you a decision that we made relative to continuing some very important new therapy programs during these six months. As I mentioned in the last two analyst meetings, it would take us about six months to essentially work out some of these costs, and we expect them to be improved in the back half of the year.

We felt that it was very important to continue these programs to focus on quality. I'm very pleased to mention that over the past year we've seen our mortality in both Europe and in the US improve by over 100 basis points. So we're clearly making progress in our clinics, our physicians and everyone working together.

There are three interesting new therapy programs that we've been basically working with for almost three or four years, and these are the Clinic Nocturnal program in the US that has about 1,000 patients, growing rapidly around 30% per year.

Our Online Hemodiafiltration therapy, which we're offering in Europe. We have over 12,000 patients on this therapy. Again we are allowing it to expand at almost 50% this year.

The third program was our demonstration project, or our Integrated Care, or now as it's known, our Accountable Care model, where we essentially are allowing it to grow at about 30% and where we are looking to improve the coordination and therefore the outcomes for the patients in these programs.

Even though it's preliminary data at this point, I'd like to just share it with you before I get into the numbers. We were looking basically at, could we do something to improve the nutritional status of these patients.

I am pleased to say, the preliminary data shows that in the Clinic Nocturnal, where we dialyze three times a week in our clinics for seven hours, we now have over 93% of the patients with a albumin greater than 3.5. You know that's quite a bit more, I'll show you later normally.

In the Online Hemodiafiltration, we're essentially at the 90 level also in terms of albumin. In our study on demonstration projects we're at 93% and there we give basically supplements to those patients if needed. So we are very pleased that we have three ways to improve the nutritional status.

The other area we were looking at in terms of Clinic Nocturnal, and essentially Online Hemodiafiltration, is can we have more of our patients reach (inaudible) standards with respect to phosphate concentration or removal. Even though these are early data, I am pleased to indicate that in the Nocturnal program, we now have between 55 and 60% of our patients there, and in the Online Hemodiafiltration between 60 and 65.

The long and short of it is, we have continued these programs and we feel that they are something that you just can't slow down or you can't start and stop and I am very pleased with the results to-date.

Now, as far as the rest of the area of quality, all of our plants are running around the world near Six Sigma in the products area. So again I feel that our focus on quality has not slipped at all, based on a very turbulent year with respect to the economic environment around the world.

Now, moving to slide five, I'll talk a little bit about the revenue. I think you've seen we basically reported it today. In dollars we increased 4% revenue to $2.76 billion. In constant currency that's 9%. Net income, up 5% in dollars and clearly if you look to that the dollar strengthened versus the euro by about 13% and so if you look at it in terms of euro income year-over-year it's up about 21%.

The good news also is our organic growth is at the high end around 8% and of course the EBIT, Larry will talk about later, margin reflects basically higher personnel cost, pharma cost and some raw materials which we talked about in the last couple of quarters, which we have plan to mitigate in the second half of the year.

Moving now to the next slide, slide six, you can see pretty much for the half year we're on the same track. The euro has stayed about a 13% increase over the dollar. We're reporting in dollars and we have a 3% increase in revenue to 5.3 billion. For the constant currency it's 9%. Net income is up 6% in dollars and if you look that in euros it'd be about 20%. Again for the half year, our organic growth stayed in the 8% range. So we're very pleased with our overall business by regions and also in terms of our growth for 2009.

Turning to slide seven, you can see the revenue by region. I'll point a few numbers here. North America had a very good quarter, almost 1.9 billion at growth rate of 9% which is the high end of their target. International, almost $900 million. Again it's in constant currency, that's a 9% growth. We've seen a very strong growth in Latin America in constant currency, again double digit. We continue to have about the same mix of services and products. About 74% of our revenue is in service.

Moving now to slide eight, I'll talk a little bit more about the global service business. Again we had a very strong revenue growth in North America. 9% growth in North America. International continues to grow at double digit in constant currency, around 13%.

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